5 June 2001
Madam Speaker and Honourable Members
I am pleased to present to the House the Eskom Conversion Bill. Allow me to commend the Chairperson and members of the Portfolio Committee for their hard work in processing the Bill. I also wish to thank the various stakeholders who took their time to make submissions and to engage with my Department on the Bill. Your engagement has been valuable and the amendments have considerably improved the Bill.
This Bill has its origin in the Eskom Amendment Act of 1998. You will recall that Eskom has previously not been subject to tax nor liable for the payment of dividends to Government as shareholder. The Eskom Amendment Act of 1998 paved the way for the removal of Eskom's tax-exempt status and also instructed the Minister of Public Enterprises to incorporate Eskom as a company in terms of the Companies Act.
Therefore, this is a technical Bill with a specific objective. It seeks to incorporate Eskom as a public company in terms of the Companies Act. It seeks to achieve this aim and, the manner in which this will be done, is by converting Eskom into a public company without interfering with any of its current operations and obligations.
The Bill puts in place sufficient safeguards to ensure that the conversion of Eskom in no way dilutes its existing obligations regarding performance, financial reporting and accountability.
These safeguards are maintained through the Public Finance Management Act and are in fact enhanced through the mechanisms set out in the Companies Act, such as for example, the requirement to publish financial statements and lodging these with the Registrar of Companies.
The Bill's definition of "deeming" includes the protection of the rights of Eskom employees and respect for collective agreements entered into between employees and Eskom, thereby strengthening the safeguards I have already mentioned.
Government's commitment to Eskom's developmental role in our society is undisputed. The Bill provides clear mechanisms and requires that the development of the enabling documents such as the shareholder compact, will not only spell out its development role in much more detail, but is further proof of government and Eskom's commitment to making electricity accessible to all our people. We have stated before that Eskom occupies a strategic position in our economy and that it is critical to the realisation of Government's efforts for a better life for all South Africans.
Honourable Members, to restate what I said earlier on, there will not be any tampering with the running of Eskom as a business despite the repeal of the Eskom Act of 1987, which currently administers Eskom. To ensure continuity, and that there are some safeguards in this regard, the shareholder compact as well as the Memorandum and Articles of Association of the new company, will serve as custodians of any responsibilities imposed by the Eskom Act, even beyond incorporation
The Conversion Bill is not introducing anything new to subject Eskom to a tax regime. Critically, the tax- exempt status was dealt with in the Tax Amendment Laws of July 2000, and we have to implement the provisions of this law.
All that the Conversion Bill seeks to achieve in this regard is to define the process of how such a tax regime will be implemented.
Concerns have been raised that taxation of this entity presupposes a hike in the price of electricity. I wish to alleviate those fears, honourable members, by publicly stating that the movement in electricity prices is not dictated to by elements such as taxation. The fact remains that other variables (e.g. input costs), of which tax is not part, inform movements in the price of electricity
For the sake of completeness, it is imperative to state that the electrification programme will not be sacrificed by the taxation of Eskom. The Government is committed to redeploying revenues derived from the taxation of and dividends from Eskom back into the National Electrification Fund. There exists a solid agreement between various Departments and the South African Revenue Services that the taxation of Eskom will be phased in gradually and systematically to avoid any unintended consequences.
Whilst wishing to maintain continuity in terms of Eskom's operations and obligations, it is necessary to highlight some of the key benefits of conversion.
Government needs to have a consistent approach in its management of SOEs. It is within this context that government wants to create Eskom as a tax and dividend paying entity, which resources will be used to enhance the programme of government on economic and social development. Conversion will level the playing field between Eskom and its counterparts in the telecommunication and transport sectors, which are also companies in terms of the Companies Act.
By converting Eskom into a company, the payment of dividends by Eskom to its shareholder, becomes a normal business practice in the corporate sector and understood by both investors and lenders internationally.
I should emphasise that this is important for Eskom's ability to raise capital at competitive rates so that the relationship between Government as shareholder and Eskom is located within a framework of corporate governance, and one that is understood by all stakeholders.
The conversion of Eskom will also enhance the governance structures within the entity. The two-tier structure of the Electricity Council and the Management Board will be done away with. This will be replaced with a Board of Directors to be appointed by Government as shareholder and as required by the Companies Act. This will also apply to subsidiaries of Eskom since the latter will be a Holding Company for existing subsidiaries and those to be established in the future.
Madame Speaker and Honourable Members, let me emphasise that this Bill is not about the privatisation of Eskom. I have stated before that in considering the restructuring options for Eskom, it was important to recognize that Eskom is one of the most efficient and low-cost producers of energy in the world. Eskom plays a critical developmental role ensuring that energy is accessible to the majority of South African citizens. In recent times, Eskom has also started to partner with its counterparts in other African countries to provide energy and energy related services. As government, we do not intend to undermine these strengths nor its strategic capacity.
Government is committed to the "managed liberalisation" of the energy sector, implemented within the context of retaining Eskom as a dominant energy supplier. It is Government's intention to engage with Labour on the restructuring of the energy sector in general and Eskom in particular when the time arises. The place for such engagement is not the forums aimed at discussing the Eskom Conversion Bill, but the National Framework Agreement between government and organised labour.
Therefore, I wish to reiterate the Government's commitment to a rigorous engagement with Organised Labour on the energy sector restructuring plan.
Honourable members, you will agree with me that it has not been easy to come this far. Let me therefore conclude by thanking you sincerely for having turned this process into a reality. Allow me to express a word of gratitude to the Office of the Chief State Law Advisor for their advice and guidance. Allow me to thank the team from Eskom: Benji Mothibedi, Mpho Matjila and Mohammed Adam, together with officials from the Department for the manner in which they gave themselves selflessly to see this process to completion.
I thank you